George Hadley has been making ends meet by driving his freight truck for the past 11 years, but he says he has had to cut back any extra expenditures on his home and family now that diesel fuel prices are on the rise.

For one thing, he has cut off his cable TV.

In the past four months, Hadley reduced his personal and living costs by 10 to 15 percent. The 81 cents to the mile he and a partner make is no longer cutting it.

"People's homes have got to suffer until the fuel prices go back down," he said.

The Phoenix-based independent owner-operator, who often passes through Houston, says costs for insurance, fuel and truck maintenance are eating up his paycheck. He and his partner drive 900 miles a day in a truck that gets around six miles per gallon, so Hadley feels the pinch every time diesel prices rise.

His problem highlights the pressure felt in the trucking business as it works to keep up with the fast rise in the price of fuel.

The nation's average on-highway diesel fuel prices hit a record $2.34 per gallon this week, according to U.S. Department of Energy data released Wednesday. While fuel surcharges are the norm, trucking companies have struggled to keep up with an average price that is 64 cents higher per gallon than a year ago and is still climbing.

"We are going to smash through" that record, said Tom Kloza, chief analyst for the Oil Price Information Service. "There's plenty of momentum to take us to $2.50. We'll end up somewhere between $2.50 and $3 in the second half of the year. That's a pretty high peak."

An average increase of 1 cent per gallon in the price of diesel over a one-year period costs the trucking industry $340 million, Headley said.

Large trucking companies are continuing to churn out profits by increasing their fees, although in some cases they've fallen short of Wall Street's expectations when their costs have gotten ahead of the rate increases.

One of the nation's largest trucking companies, Swift Transportation, upped revenue by 19 percent to $742.6 million in the first quarter compared with last year. The company's net income tripled to $19.4 million.

Companies such as Werner Enterprises, which Hadley mainly drives for, adjust rates based on the cost of fuel — adding to the base freight rates after fuel prices hit a certain point — to cover the higher cost of fuel for drivers who own their rigs.

"Unfortunately, it's never enough to make up dollar for dollar what you lose in fuel, but it helps," Webb said. "You try to buy fuel in the best places, but sometimes you get into situations where you don't have a whole lot of choice. If the cost of fuel goes up, you wind up having to eat it."

"It's particularly problematic for smaller companies and individual owner-operators who own their own trucks. It's difficult for them to recover the increased cost of fuel," he said. "Business is very good. Freight rates are pretty good. The only thing to attribute it to is fuel costs."

More than two-thirds of the country's goods are transported on trucks, and freight loads increased 8 percent to 9.8 million tons last year.

High prices, no problem

Fuel isn't an issue for drivers employed by companies. Ross Petersen of Houston works for Waggoners Trucking and receives a flat rate regardless of what his employer pays for fuel.

"There's a lot less revenue for my boss," Petersen said, as he filled up his tank at the Flying J Travel Plaza on Interstate 45 just north of Houston. "Fortunately, it doesn't come out of my pocket, at least not yet."

The trucking industry, which consumes nearly 35 billion gallons of diesel annually, is on track to spend at least $16 billion more on fuel than it did last year, according to Headley of the American Trucking Associations. Last year, when diesel fuel averaged $1.81 per gallon, the industry spent $62.6 billion.

Trickle-down effect

Ultimately, Petersen said, costs are going to be transferred to freight customers.

"If fuel prices are going to keep going up and up and up — which they are — then your rates are going to go up, or you're going to have to cut somewhere," he said.

"Trucks have got to move. If they don't, then people can't get their bread, their lettuce. Anything and everything you own was on a truck at some point — guaranteed. The fuel price is going to hurt everybody."

Kroger Co. and H-E-B food stores have not yet translated costs into their products.

"All retailers are starting to feel a little pressure on the cost of goods, but we have not raised prices yet," H-E-B spokeswoman Holly Montalbano said.

Houston-based food distributor Sysco Corp. is cutting the miles it drives by building facilities closer to its customers, spokeswoman Toni Spigelmyer said.

Diesel prices, along with the price of crude oil, should continue to rise through October.

"Markets are anticipatory animals," said Bill O'Grady, director of futures research at AG Edwards & Sons. "If you have a normal winter, prices usually peak around Halloween. What usually happens is that prices rise into late October and begin to edge lower as the market has already anticipated what the winter time is going to bring. Prices increase in the winter if the winter is unusually cold."

National distillate demand is 6.9 percent higher than it was last year, according to the U.S. Department of Energy. Gasoline demand is 2.5 percent higher.

"Consumption has really been strong," said O'Grady, who sees it as a sign of a bustling economy. "Generally we look for a 2 to 2.5 percent increase in distillate demand. That's the usual increase. The demand has just been phenomenal."

"If you want diesel prices to go down, you've got to slow down the economy," he said.

Soaring demand

One plus for drivers like Hadley is that there's no shortage of jobs in his line of work.

An aging work force is starting to worry truck companies, which lack qualified drivers and applicants. Not as many people are entering the industry because pay has not kept up with inflation, according to Webb of the Texas Motor Transportation Association.

"The economy is growing strong and there's tremendous demand for all kinds of skilled labor," said Dave Berry, vice president of Swift Transportation. "The truck driver has many choices available to him beside driving a truck. There's fewer young people entering the work force. There's more people retiring from truck driving. That's taking labor out."